SEC Adopts Modernized Marketing Rule for Investment Advisers

Washington D.C., Dec. 22, 2020 —

The Securities and Exchange Commission today announced it had finalized reforms under the Investment Advisers Act to modernize rules that govern investment adviser advertisements and payments to solicitors. The amendments create a single rule that replaces the current advertising and cash solicitation rules. The final rule is designed to comprehensively and efficiently regulate investment advisers’ marketing communications.

In the decades since the adoption of the current rules, advertising and referral practices have evolved. The technology used for communications has advanced, the expectations of investors seeking advisory services have changed, and the profiles of the investment advisory industry have diversified. The new marketing rule recognizes these changes and the Commission’s experience administering the current rules. The reforms will allow advisers to provide investors with useful information as they choose among investment advisers and advisory services, subject to conditions that are reasonably designed to prevent fraud.

“The marketing rule reflects important updates to the traditional advertising and solicitation regimes, which have not been amended for decades, despite our evolving financial markets and technology,” said Chairman Jay Clayton. “This comprehensive framework for regulating advisers’ marketing communications recognizes the increasing use of electronic media and mobile communications and will serve to improve the quality of information available to investors. The new rule provides for an extended compliance period intended to provide advisers with a sufficient transition period, including to enable consultation with the Commission’s expert staff.”

The rule replaces the current advertising rule’s broadly drawn limitations with principles-based provisions designed to accommodate the continual evolution and interplay of technology and advice, and includes tailored requirements for certain types of advertisements. For example, the rule will require advisers to standardize certain parts of a performance presentation in order to help investors evaluate and compare investment opportunities, and will include tailored requirements for certain types of performance presentations. Advertisements that include third-party ratings will be required to include specific disclosures to prevent them from being misleading. The rule also will permit the use of testimonials and endorsements, which include traditional referral and solicitation activity, subject to certain conditions.

Finally, the Commission adopted related amendments to the investment adviser registration form and the books and records rule. The staff of the Division of Investment Management also expects to withdraw no-action letters and other guidance addressing the application of the advertising and cash solicitation rules. A list of the letters will be available on SEC.gov.

FACT SHEET

Investment Adviser Marketing

Dec. 22, 2020

Highlights

On Tuesday, Dec. 22, 2020, the Commission announced it had finalized reforms to modernize rules that govern investment adviser advertisements and compensation to solicitors under the Investment Advisers Act of 1940. Neither rule has been amended significantly since its adoption over forty years ago.

The amendments create a single rule that draws from and replaces the current advertising and cash solicitation rules, Rule 206(4)-1 and Rule 206(4)-3, respectively. The final rule is designed to comprehensively and efficiently regulate advisers’ marketing communications. The Commission has also made related amendments to Form ADV, the investment adviser registration form, and Rule 204-2, the books and records rule.

The Marketing Rule Under the Act

The amendments to Rule 206(4)-1 will replace the broadly drawn limitations and prescriptive or duplicative elements in the current rules with more principles-based provisions, as described below.

Amendments to the Books and Records Rule and Form ADV

In connection with the marketing rule amendments and merger of the current advertising and cash solicitation rules, the Commission also adopted amendments to the books and records rule. In addition, the Commission amended Form ADV to require advisers to provide additional information regarding their marketing practices to help facilitate the Commission’s inspection and enforcement capabilities.

Withdrawal of Staff Guidance

The staff of the Division of Investment Management will withdraw no-action letters and other guidance addressing the application of the advertising and cash solicitation rules as those positions are either incorporated into the final rule or will no longer apply. A list of the letters will be available on the Commission’s website.

What’s Next?

The marketing rule, amended books and records rule, and related Form ADV amendments, will be published on the Commission’s website and in the Federal Register. All will be effective 60 days after publication in the Federal Register. The Commission has adopted a compliance date that is 18 months after the effective date to give advisers a transition period to comply with the amendments.

The Commission recognizes that this amended rule replaces an outdated and patchwork regime on which advisers have relied for decades. While the rule reflects current best practices in marketing, it may result in practice changes for advisers, including private fund advisers. In order to assist advisers with planning for compliance with this new rule, we encourage advisers to actively engage with Commission staff as questions arise in planning for implementation. You may send your questions by email to IM-Rules@sec.gov.

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